Brunel University has shelved plans to build an academy for 16- to 19-year-olds on its campus, dealing a blow to the government's plans for a bigger role for the private sector in education.

Preparations for the UK's first such academy on a university site were at an advanced stage, but Brunel has decided that it has more pressing needs for the land in Uxbridge, west London.

Tony Blair has thrown his weight behind the academies programme, which is designed to raise secondary school standards. The Department for Education and Skills has hailed the involvement of universities in academies, hoping it would placate critics who claimed that businesses and religious groups were being given too much control over the schools. The education bill, published on Tuesday, featured plans for new "trust" schools, which will be formal partnerships with local businesses and sponsors.

Early last year Brunel announced a £1.2m sponsorship deal with HSBC bank to help to fund a £17m academy to teach 800 pupils maths, science, engineering and technology. But yesterday Brunel's new vice chancellor, Chris Jenks, told the Guardian that the university's governing council had decided that higher education teaching and research had to be the priority for the site, the last piece of the campus where new building could be done.

Professor Jenks, who has been barely a week in post since replacing Steven Schwartz - who was a government adviser on higher education - said that although a feasibility study led by the Department for Education had given the green light for the proposal, a separate feasibility study by the university on its own future had concluded that there were more important calls on the site. "The place where the academy was to be built was the remaining footprint on the campus and the only place left for the university's academic development."

Prof Jenks insisted that Brunel remained enthusiastic about housing an academy and had offered the Department for Education another site attached to its Uxbridge campus. But this site is within the green belt and does not have planning permission. "The exact words from the department were that the proposal would be put on hold," Prof Jenks said. "We could apply for planning permission but that's a very lengthy process. We would need a sign from the government that it is worth it." He added: "The plans had got to quite an advanced stage. Nobody has been particularly delighted by this interruption." But building the academy would have been "at the expense of the university's core business", higher education.

The academy programme aims to replace 200 struggling secondary schools with privately backed schools by 2010. Private individuals and businesses pay up to £2m in initial sponsorship and then gain a large degree of control over a school's curriculum, staffing and ethos. The government provides up to £25m in funding for the school. Brunel was not committed to contributing towards the initial sponsorship, but agreed to fund part of the annual running costs of the academy.

In London, City University has agreed to jointly sponsor an academy to replace Islington Green school in conjunction with the Corporation of London, following the withdrawal of the original sponsor, Ark. Other universities in talks about linking up with academies are Liverpool, University College London, Nottingham, Nottingham Trent and Sunderland.

Steve Sinnott, general secretary of the National Union of Teachers, said the decision highlighted the vulnerability of big education projects when external partners were involved. "We don't mind universities getting involved in schools, but it doesn't need to be through formal involvement with academies. This will be a major disappointment to the government, which should listen to all the evidence and put a halt to the entire academy programme."

The Department for Education said: "We understand that site issues have put this particular project on hold, but there are a number of academy proposals which involve universities and these are progressing well. Early discussions have taken place with four more universities about sponsoring academies and with a lot more universities who want to get involved with local projects."